EU-US Privacy Shield: Brace Yourself . . . or Maybe Not

On February 29, 2016, the European Commission and United States released the terms of the much-anticipated renewed framework for the transfer, sharing, and processing of European individuals’ data to the United States. The framework replaces the “Safe Harbour” mechanism, which enabled U.S. to transfer data from the EU to the United States by self-certifying that their practices ensured an adequate level of protection for personal data under the EU Data Protection Directive. In October, the “Safe Harbour” framework was declared invalid by the European Court of Justice in the Schrems decision covered earlier in this blog.

The agreement reached between the European Commission and several U.S. government agencies defines the obligations now placed on participating companies that transfer data to the United States. Two driving forces behind the renegotiation have created two distinct but related sections of the framework: 1) the mechanism, and 2) commitments from United States agencies to provide adequate protection to data related to individuals in the EU, including in the area of enforcement and surveillance.

Below we present an overview of the logistical steps the proposed framework must pass to be implemented in the EU and discuss in detail the measures businesses might take to prepare themselves to comply under the terms of the new Privacy Shield.

Final hurdles

The European Commission judged the Privacy Shield and commitments from the United States to be adequate measures to meet EU standards of data privacy in the United States and has drafted a proposal of what is called an ‘adequacy decision’. Before its final adoption by the European Commission, the decision must be reviewed by a number of groups including the Data Protection Authorities (DPAs) of the EU Member States and the European Parliament. That vetting process may require a couple of months, but the DPAs’ timeline indicate a decision could be reached by the end of April. We can expect much debating in Parliament, but ultimately the European Parliament would not be able to block the final decision.

The Privacy Shield – Companies, prepare yourselves

First, and most importantly for companies and end users of individual data, the European Commission has expressed concerns and dissatisfaction with the way U.S. companies upheld the principles and obligations of the Safe Harbour scheme. For that reason, the Privacy Shield goes further than the Safe Harbour framework in imposing stronger obligations on companies in the US to protect personal data of Europeans and in offering robust enforcement mechanisms.

In line with the Safe Harbour framework, the Privacy Shield is based on a ‘self-certification’ mechanism, whereby companies can voluntarily choose to register, “opt in.” Once registered, the Privacy Shield obligations become binding and enforceable. So, what should companies do while waiting for the entry into force of the Privacy Shield? Well, they can start by reviewing some of the important obligations that will impact their organisations should they opt in:

Make clear information available to EU individuals through the company website regarding data processing and the company’s obligations under the Privacy Shield. That declaration should include a link to the Department of Commerce’s Privacy Shield website;

Provide clear information regarding the rights of individuals to access their personal data, the requirement to disclose that data in case of a lawful request by the authorities, and your liability in case of onward transfer of data to third parties;

Clearly state the purpose of your data collection and processing activities;

Establish a rapid response mechanism, responding within 45 days, to individuals who may complain or inquire about your practices;

Provide individuals, at no cost, an independent recourse mechanism which can investigate and resolve the individual’s complaints or disputes;

Commit to binding arbitration at the request of the individual for any unresolved complaint or dispute;

Respond promptly to inquiries by the Department of Commerce who will have oversight of the Privacy Shield framework and the authority to bar and fine participants;

Ensure the company’s commitments are kept as long as it holds the data;

Make public and be transparent about any enforcement action including FTC (Federal Trade Commission) and court actions for non-compliance in which the company is involved.

Participants will also need to ensure that data transferred to third parties is used only with a limited and specific purpose, and that the third party complies with the same principles and offers at least the same level of protection as the data transferor. Your company should examine all appropriate steps to mitigate and block unauthorized processing by third parties.

U.S. Agency Commitments

Secondly, the Schrems case struck down Safe Harbour because of the lack of safeguards and control mechanisms against “widespread” and “indiscriminate” surveillance activities by US authorities. That issue has been extensively addressed by a series of political and procedural commitments issued by several U.S. federal agencies including the Department of Commerce, Transportation, State, Justice and the office of the Director of National Intelligence. In a nutshell, those commitments revolve around clear limitations, safeguard, and oversight mechanisms. They range from annual review commitments, prompt enforcement, binding arbitration, and cooperation with DPAs, to the creation of a new “independent” Privacy Shield Ombudsman function at the State Department that will address concerns of EU individuals relating to US signals intelligence. The US has also offered further legal remedies that EU individuals will be able to exercise in the US.

Other noteworthy changes

The Department of Commerce has taken further important conciliatory steps to work with local DPAs across the European Union. For instance, Commerce is working to resolve EU individual complaints within 90 days through the establishment of the dedicated point of contact. The Federal Trade Commission will also work closely with the DPAs to provide enforcement assistance.

EU individuals will also be able to pursue legal remedies through private action in the U.S. state courts.

In the area of law enforcement, U.S. access to data under the Privacy Shield will be permitted within the limitations and with respect to ‘proportionality’ and ‘necessity’ and ‘reasonableness’ principles.

Clarity for the future?

We know that privacy advocates across the EU have already vowed to challenge the new framework. We should not discount the possibility of an escalation to the European Court of Justice of a Schrems (part 2) scenario. However, the slowness of the process means that we can expect for the EU-U.S. Privacy Shield to be in place for at least five to seven years. However, because the Privacy Shield comes with numerous obligations and potentially strong enforcement, we recommend that companies seeking its protection also seek knowledgeable advice on how best to comply with its requirements.

This alert is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship. Please contact your Sheppard Mullin attorney contact for additional information.

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